EU reaches deal on bill to vest ECB with bank oversight powers

European Union lawmakers and national governments clinched a provisional deal on legislation to turn the European Central Bank into a supervisor, a move that would pave the way for the currency bloc’s firewall fund to provide direct bailouts to banks.

While agreement was reached on the ECB bill in Brussels today, talks will continue this afternoon on a second draft law that would upgrade the role of the London-based European Banking Authority, according to Philippe Lamberts, a lawmaker in the European Parliament. The ECB deal is contingent on an agreement being reached with the central bank on Parliamentary controls, he said.

The single supervisor is “major federal progress,” said Lamberts, a Belgian member of the Parliament’s Economic and Monetary Affairs Committee. “Banks with assets between 75% and 80% of the total assets in Europe will be directly supervised.”

EU leaders called for the new supervisor as they sought to tame a fiscal crisis that has forced Greece, Portugal, Ireland, Spain and most recently Cyprus to seek international aid. The move is part of a broader plan to build a so-called banking union that may also include a central authority for resolving failing lenders, due to be proposed later this year.

Tough Measures

Cypriots woke up on March 16 to find bank transfers frozen as the country’s authorities prepared to tax accounts as part of a rescue package thrashed out by Eurozone finance ministers. The agreement remains in limbo as Cypriot lawmakers weigh whether to approve the deal amid warnings from the country’s president, Nicos Anastasiades, that tough measures are needed to avert the collapse of the banking system.

The ECB this week has been one of the leading voices calling for depositors in Cyprus to accept the one-time levy, intended to raise 5.8 billion euros ($7.5 billion) along side a planned 10 billion-euro official-sector rescue package.

Sharon Bowles, chairwoman of the economic committee, said that the ECB’s role in designing the Cypriot aid package raised concerns about how it would act once it has oversight powers.

“Central banks have to be tough sometimes, but what hope is there for accountability when they seemingly force decisions like this at gunpoint with no regard for financial legislation,” Bowles said in an e-mailed statement ahead of today’s talks. “We must question ECB independence on supervision. If anything this strengthens the case for more democratic accountability.”